Nexus Industrial REIT

TSX:NXR.UN

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for standing by this is the conference operator. Welcome to the Nexus Industrial REIT Second Quarter 2021 Results Conference Call. As a reminder, all participants are leaned and the conference is being recorded. [Operator Instructions]

I would now like to turn the conference over to Kelly Hanczyk, Chief Executive Officer. Please go ahead.

[Kelly Hanczyk, executive]

Thank you. I'm super excited to welcome everyone to the 2024 Second Quarter Results Conference Call for Nexus Industrial REIT. Joining me today is Mike Rawle, Chief Financial Officer of the REIT. Before we begin, I'd like to caution with regard to forward-looking statements and non-GAAP measures. Certain statements made during this conference call may constitute forward-looking statements, which reflect the REIT's current expectations and projections about future results. Also during this call, we'll be discussing non-GAAP measures. Please refer to our MD&A and the REIT's other securities filings, which can be found on our website and at sedar.com for cautions regarding forward-looking information and for information about non-GAAP measures.

For the last 24 months, we've been investing to improve our business. Our goal has been to high-grade and optimize our portfolio and to align it with our strategy to be the only Canadian focused industrial REIT. We have been investing through acquisitions through 4 development projects. We have diligently executed on this strategy, and I'm thrilled to share that we are starting to see the results. On last quarter's call, I mentioned that we are nearing an inflection point and that we are on the cusp of beginning to realize the benefit from our investments. Our results improved materially this quarter, and it is now clear that we have passed this inflection point and have a long runway of growth ahead of us.

In the second quarter, our FFO improved 9.2% to $0.178 per unit, and our AFFO improved 10.4% to $0.148 per unit. In both cases, the increase was driven by stronger net operating income was $31.6 million, which was up 7% compared to last quarter and was up 14% or $3.9 million compared to a year ago. The NOI increase was largely driven by 3 factors: acquisitions, organic growth and development. I will discuss each of these in more detail.

[ Our ] new properties acquired over the past year contributed $3.9 million to NOI in the quarter. Within the quarter, we acquired 1 new building, 135,000 square foot industrial property in Colona, BC for $35 million at a cap rate of around $7.1 million. The building is fully tenanted and contributed $300,000 of NOI in the quarter.

Our industrial same property net income -- operating income was $23.7 million in the quarter and $800,000 increase from a year ago. The increase was driven primarily by the lease-up of our Richmond BC property. Overall, I'm pleased with our same property NOI growth given the fact that we faced key vacancies in Q2 that carried over from Q1. The good news is that we've now resolved the vacancies. At our Exeter Road facility in London, Ontario, a new tenant, one of our existing tenants has taken a possession in July, taking all 68,000 square feet of vacant space. It's always good to see existing tenants grow. And at our 102 Avenue Southeast Calgary location, a new tenant took the full 29,000 square foot building effective August 1.

The new tenant in Southeast Calgary did not lease the adjoining vacant land. It's about 6 acres. Instead of leasing it, we will construct a 115,000 square foot small bay industrial building on the land, which will be completed mid-2025 for about $15 million at an expected yield of 12%. Small bay industrial is in high demand in this node of Calgary. I'm also happy to share that we received the building permits and complete the lease-up of our Richmond BC facility this quarter. has been a long and sometimes challenging journey. So I'm thrilled to have the property cash flow. During the quarter, the Richmond property contributed NOI of $900,000.

Our Titan Park development in Regina, Saskatchewan was the first of our recent development projects to be completed. We finished it on schedule and within budget. And the primary tenant took occupancy of 200,000 square feet, April 1. The property contributed a healthy $500,000 of NOI this quarter. We've also found a tenant for the remaining 112,000 square feet. We're just in the final throes of having the lease sign, which is any day. They will take occupancy -- scheduled to take occupancy on February 1, 2025. Once this is fully leased, the property will add annual stabilized NOI of about $3.6 million, representing a 7.5% cap rate on our investment of $48 million. Think there's still continued upside there as we have another 5 acres of land that could be utilized for parking and may bring additional revenue down the line.

Turning to our other development projects. In Q3, we will benefit from the completion of our [indiscernible] Road industrial intensification project in London. We completed this 96,000 square foot building addition in July, and the tenant took occupancy in the third week of July. The project will contribute a going in yield of over 8% in the first year on development costs of $14 million, and the project has significant rent escalations thereafter. It also builds on our leadership position in the highly desirable London market, which continues to be one of the tightest industrial markets in Canada.

We're also making great progress on our Glover Road, [ new build ] in Hamilton near the airport. At the quarter end, we were tracking ahead of schedule and budget, and we completed construction. It is a 115,000 square foot building with industry-leading 40-foot clear height lead certification. We own 80% of the property and expect to earn a 5.9% going in yield on our $25 million share of the development costs. We're currently looking for a tenant, and I'm optimistic that will be soon leased.

Construction is ongoing at our Dennis Road property in St. Thomas, Ontario for the expansion of our existing tenant Element 5, a producer of mass timber. This project is a 325,000 square foot addition at an estimated cost of $46 million. The tenant pays us 7.8% interest on the development costs that we incurred during the construction phase. So there's no financial drag on our cash flow. Once it's completed, which we now expect will be in February 2025, the tenant will pay us a contractual rent equal to 9% yield on all development costs.

After the quarter end, we opportunistically acquired a brand-new single-tenant industrial property, which was a brand-new build-to-suit for one of our existing tenants in the portfolio that is easily divisible into 2 units, if necessary, down the line. The purchase price was $16.6 million, including $4.6 million of class DLP REIT units issued at $10 per unit, which was a 45% premium to our trading price on that day, not an easy sell. The 62,000 square foot building is located in churro, Quebec and will yield 6% going in 6%.

On a full year basis, I expect that the actions we've taken and the positive benefit of embedded rent escalation will drive mid-single-digit same-property NOI growth in our industrial portfolio. Looking beyond 2024, I continue to expect to earn a healthy rent lift on renewals due to the industrial market rents that are, on average, 25% above in-place rents and from rent escalation embedded into our lease contracts.

We have high-graded our portfolio through acquisitions and organic development. Our priority focus now is selling some of our legacy retail and office assets and the noncore industrial properties, which do not fit our strategy. Selling these assets has 2 significant benefits. It increases the weighting of our industrial portfolio and it delevers our balance sheet. During the second quarter, we made significant progress on this goal. We closed on the sale of one of our office buildings located in Quebec at its carrying value of $5.1 million, and we contracted for the disposition of 28 other noncore properties for a total of $107 million, which I'm sure we'll get to into the Q&A.

In the short term, we no longer expect to sell our portfolio of Western Canada truck terminals. We, therefore, are now targeting noncore asset sales of approximately $110 million in the second half of 2024. We will use the proceeds from the sales to reduce our debt.

In summary, we continue to advance our strategy of Canada's pure-play industrial REIT. This quarter demonstrated that we have passed the pivot point and expect our results will continue to improve from here. We have resolved the key vacancies. Our accretive developments are coming online. We'll continue to realize significant organic growth through embedded rent steps and positive mark-to-market on renewal. In the coming months, we will also focus -- further focus our portfolio and delever our balance sheet through strategic dispositions.

I'm going to pass the call over to Mike to go over to give you some more color on the financials.

[Michael Rawle, executive]

Thank you, Kelly, and good morning, everyone. Starting with the headline earnings in the quarter. Net income was $43.5 million, a $33.7 million decrease compared to a net income of $77.2 million last year. The decrease was due to noncash fair value adjustment gains on investment properties of $13.6 million in the quarter compared to gains of $33 million last year. In addition, we experienced a noncash unrealized mark-to-market loss on our interest rate hedges of $3 million compared to a gain of $6.4 million a year ago. We also had a $21.1 million noncash fair value adjustment on our Class B units compared to a gain of $25 million in 2023.

As Kelly mentioned, our Q2 net operating income increased 14% or $3.9 million year-over-year to $31.6 million. Of this amount, new acquisitions accounted for $3.9 million and an increase in same-property NOI added an additional $800,000. This growth was partially offset by a $400,000 relating to asset dispositions made since the first quarter of 2024 -- 2023, and a reduction in the same property NOI by $400,000 from land preclassified to property under development in the quarter.

Normalized AFFO for the period was $0.148 per unit, a decline of $0.07 from a year ago as the benefit from higher net operating income was more than offset by a combination of higher interest expense and more units outstanding. Total general and administrative expenses for the quarter was $1.8 million, which was $200,000 higher than a year ago due to higher legal and professional fees.

Net interest expense for the quarter was $13.8 million, a $3.6 million increase from the same period last year. The increase was primarily due to a higher outstanding average debt balance resulting from borrowings to fund acquisitions and development expenditures. At June 30, our NAV per unit was $13.20, and $0.11 per unit increase from last quarter. Our weighted average cap rate decreased by 4 basis points to 5.8% in the quarter compared to 5.84% at March 31, 2024.

The fair value of our investment properties increased by $82.5 million in the quarter, primarily due to the acquisition of a new property in Colona for $35 million, development spend of $18 million and positive fair value adjustments of $27 million.

I'll now turn the call back to Kelly.

[Kelly Hanczyk, executive]

Thanks, Mike. Our strategy to be Canada's pure-play industrial REIT is and will continue to be meaningful and rewarded. I'm excited about the progress we've made to date, and I look forward to continuing the momentum that we have built.

[Operator]

[Operator Instructions] The first question comes from Mike Markidis with BMO Capital Markets.

[Michael Markidis, analyst]

Kelly and Mike and congrats on the solid results. Kelly, you gave some really good detail just in terms of the NOI contributors, specifically, I think it was the $0.5 million on Titan Park, $300,000 with Colona. You mentioned $900,000 at Richmond. Was that the incremental quarter-over-quarter? Or is that the total NOI from Richmond this quarter?

[Michael Rawle, executive]

That's the incremental addition to NOI this quarter. Yes. I mean, yes, year-over-year. [indiscernible] higher if you take total Richmond contribution, it's just over $1 million. So maybe 1 million plus a quarter. So it comes out to over $4 million on an annual basis.

[Michael Markidis, analyst]

And how much additional upside is there as the tenant stabilizes?

[Kelly Hanczyk, executive]

It's going to take a little while. I think I structured it with 2 years at this rent and then decent increases in year 3 and year 4? It means pretty decent.

[Michael Markidis, analyst]

Pretty decent. Okay.

[Kelly Hanczyk, executive]

Yes, yes. Substantial yes.

[Michael Markidis, analyst]

So this is the run rate. So Richmond now the upsides in the NOI, so that will continue. There's no near-term.

[Michael Rawle, executive]

Mike, I just check, the annual run rate right now is $4.5 million. So it's about $1.1 million a quarter.

[Michael Markidis, analyst]

And the $900,000, I know you talked about it being year-over-year, but was that the step up versus Q1 as well? Or was it less than that?

[Kelly Hanczyk, executive]

No, we give adjustment from Q1 in Q2.

[Michael Rawle, executive]

It's a bit messy because when you talk NOI, it's different from -- because we had the BRO, which wasn't included in NOI before. So if you look at the actual impact on NOI, it's $900,000, but if you look at total contribution to FFO, it's lower. So total NOI part is 900,000.

[Michael Markidis, analyst]

So the BRO came off, you didn't have that adjustment of this quarter so that goes into plus an internal... Got it. Okay. Just on the dispositions, it sounds like you're making good progress there. I was just wondering on the $110 million that you expect to close in the end of the quarter. If you could provide us the following details. One would be just the average in-place cap rate based on the NOI that was in Q2.

Second would be the amount of debt attached to that and the average rate. And then third, and I promise this is my last question before I turn it back. Just if you expect to provide any vendor take back financing as part of any of those deals.

[Michael Rawle, executive]

Yes, average in-place cap rate is around 7.1%.

[Kelly Hanczyk, executive]

So it involved our old Montreal portfolio, the retail portfolio and really like the 3 major ones are and then a small portfolio of Saskatchewan properties that we have. The old Montreal would be I would say the closest it's firm, saving except our lender agreeing to transfer over, and that's for the entire portfolio. So -- and that will close in 3 different stages. So we're expecting September and October on that one. And we are making good progress with our lenders. So I don't foresee any issues. It's the only possible thing, but they've -- we've already got a commitment letter from them. So I would say that's pretty close to being done, so September, October close.

And the other one that we have, the Saskatchewan portfolio, that's closing in on waiver date. So we'll see how that goes, but there's been no issues and that is expected a January close for that. And then our retail portfolio, we have under contract with someone, but there's a ROFR and the ROFR is with our partner, and so we'll see how that plays out over the next month, but that would be expected to be probably end of the year, closed November-ish. And I think those are the major ones in there.

[Michael Rawle, executive]

Yeah there is another small property and a bit of excess land over as well. So -- and those are probably Q4 closes.

[Michael Markidis, analyst]

And then that's a 7 cap. And then do you have a sense of the amount of debt and the average rent or rent rate on that debt.

[Michael Rawle, executive]

Mike, I don't have that at hand. We have to come back to you with that.

[Michael Markidis, analyst]

I can see everybody on my peers probably throwing start right now. But just on -- do you expect any VTB financing as part of any of these transactions?

[Kelly Hanczyk, executive]

There might be in the old Montreal portion a very, very, very small one. But right now, it doesn't look like there'll be any.

[Michael Markidis, analyst]

Congrats again.

[Operator]

The next question comes from Kyle Stanley with Desjardins.

[Kyle Stanley, analyst]

I'm just wondering if we can dig into the Short book deal just a little bit more. I think you mentioned it there, about a 6 cap. Just if we could talk through, I guess, rationale for expanding into [ Sherbrooke, Newmarket ]. And then, I guess, more broadly, how are you thinking about the acquisition environment. Obviously, there's been a lot of focus on the capital recycling, but what are you seeing in the acquisition environment?

[Kelly Hanczyk, executive]

Yes. This is a little opportunistic. It's a tenant within our portfolio. In the retail portfolio, actually, it's their warehouse. So it's a brand-new build. So rationale, unit deal, 6 cap. But I mean it's a pretty seriously building. So consider a 10-year deal, 6 cap its 3% increases a year. We took it away, letter cash flow. We don't have to spend any CapEx on it for the next foreseeable future. Good solid tenants that we have are building a relationship with that may end up as part of this transaction take one of our other office buildings that we have. So a little bit more strategic on a bigger picture.

[Kyle Stanley, analyst]

And then I guess, otherwise, acquisitions something you're looking at or maybe waiting until the disposition activity occurs.

[Kelly Hanczyk, executive]

Yes. We've parked acquisitions right now, saving and accept, I say that loosely. If there was an appropriate unit deal to be had, we would definitely do that. So we're always scouring looking at different deals. But from a cash perspective, I'd say we don't have anything imminent on the horizon.

[Kyle Stanley, analyst]

And I guess, with that in mind, looking at keeping leverage below the 50% threshold, is that something you think based on, I guess, the clarity you have on the disposition profile that you should be able to keep leverage maybe below that level?

[Kelly Hanczyk, executive]

Yes. I think we're going to be before -- I mean we do have development happening, right, which stresses it a little bit. So it's going to be in and around. If we do creep over, it will be not for long as the dispositions happen. So we'll just have to see as they go along here.

[Michael Rawle, executive]

If we take over Kyle, it will be very minor and with a clear path to being below it, the dispositions are close. So I don't see an issue there. And I'd be -- I don't expect it will impact our financing costs.

[Kelly Hanczyk, executive]

Yes. And let me just clarify, too, we had Westcan under contract [ Sangroup ], and they couldn't get the loan to value. It was a pretty high loan to value. And so they do own other properties that they're trying to sell. They'll probably come back to us down the line if they sell them and they're able to reduce that loan-to-value requirements. So for me, I pulled it off. It's a higher cap rate cash flowing assets for us that are under longer-term leases. So to me, I would just soon keep the cash flow for now. I'm not in a hurry to sell it, but if they came back at their price and with the lower term to value, we would resurface it. So I hope that gives some clarity there.

[Kyle Stanley, analyst]

Yes, definitely. And just one last quick one. On the G&A, would you say kind of what we saw this quarter is a good run rate?

[Kelly Hanczyk, executive]

Yes. Yes.

[Operator]

The next question comes from Brad Sturges with Raymond James.

[Bradley Sturges, analyst]

I just wanted to go back to your guidance on the cap rate, the 7.1% cap rate that includes the Saskatchewan portfolio as well within that number, right?

[Kelly Hanczyk, executive]

It would.

[Bradley Sturges, analyst]

But if we were just to break out Saskatchewan versus Sandalwood-- how would that -- those cap rates compare?

[Kelly Hanczyk, executive]

I think the Sandalwood would be -- I don't want to -- my head right here. I don't know if I have it in front of me.

[Bradley Sturges, analyst]

I could take it offline to...

[Kelly Hanczyk, executive]

Yes, we can get back to you.

[Bradley Sturges, analyst]

Sounds good. And sorry, maybe I missed it, just on the RTL Westcan. I think the credit facility secured to that portfolio, what would be the -- that matures in September, what would be the refinancing plan there for now?

[Michael Rawle, executive]

Yes. We're rolling that. So we're going to roll it at a slightly lower rate. So it's -- will be closed any day now.

[Bradley Sturges, analyst]

Would you be fixing that rate with a swap as well?

[Michael Rawle, executive]

Yes. Most likely and doing a 1-year deal. Got you.

[Bradley Sturges, analyst]

Beyond, I guess, maybe revisiting RTL Westcon another point. Is there anything else within the industrial portfolio to be considering from a disposition point of view?

[Kelly Hanczyk, executive]

Yes. Well, I think how we're looking at it right now is we've got the retail. We've got those office. We have [indiscernible] left that we're out to market with one of the brokerage firms. So hopefully, that gets done this year as well. We'll see what kind action we had. I think it closes in about a week. And then we still have Stanley. We have a [ colon ] one in Gatineau that will probably then put on the block for us, which will pretty much -- we complete these deals, we're 99% industrial. So from that point on, we do have -- we have one problem asset in Fort St. John, I would call it, that we actually had some interest on and we're waiting to see if we get an offer to purchase on it. We are in the process of selling some land there as well, hopefully, additional land that we just had attached to it, which would be a bit of a windfall because we don't carry that at a huge value on our books. So it could down the line. But it's going to be little assets like that, I would say, and here and there. Unless someone comes to us with a killer offer for something else, but I know we like the portfolio we've developed over the last several years. It's -- we get rid of some of the Saskatchewan ones. Our average age starts to decrease. And a lot of the stuff that we've purchased recently has all been brand-new build. So I like that from a CapEx standpoint. So Yes, I hope that gives some clarity. Any maybe smaller little guys that we have struggling along could go next year.

[Operator]

The next question comes from Himanshu Gupta with Scotiabank.

[Himanshu Gupta, analyst]

On the asset dispositions, I mean, you mentioned 7.1% cap rate. How does the value compared to the IFRS value you carried?

[Michael Rawle, executive]

We will have -- we just took a write-down of about $10 million on our retail portfolio, Sandalwood retail. So that was this quarter, and that was to basically line up our carrying value with yes, the PSA. And so we're basically in line at this point.

[Himanshu Gupta, analyst]

Okay. So I mean, whatever fair value loss you have taken, that's already been taken -- anything regarding the Saskatchewan properties noncore?

[Michael Rawle, executive]

No.

[Kelly Hanczyk, executive]

No, that's good.

[Himanshu Gupta, analyst]

That's fantastic. And then I know Sandalwood has done a couple of more. So what is now left on office and retail? Is it just like suburban Montreal office?

[Kelly Hanczyk, executive]

Yes. So we have our, I would say, [indiscernible] building, which I think is about $12 million, something like that. We have Stanley where our Montreal office is located. So we own 50% of that with the notaries of Quebec. And then we own 50% of one office building in smaller one in Gatineau with another group. And then outside the Sandalwood portfolio, we have carved out [indiscernible], which is probably the single best asset in that retail portfolio. And we carved that out because we are still ongoing with the sale of the vacant land, and it's getting close. It's been a battle with the city, but they've got approval now is down to just an easement issue with the neighboring lot, the neighboring property, and that should be resolved soon. So I think we'll be able to pull cash out of that. And then after that, we will then put that to the market. But the reality is that's a great asset, and I would assume Sandalwood probably we'll want to take that one back. So it might be an easier process. The retail portfolio is hard, like when you're trying to sell a 50% non-managing interest, it gets a little tricky. So that's why there's been the delay.

[Himanshu Gupta, analyst]

And the last retail property will be sold once that excess land is sold, right?

[Kelly Hanczyk, executive]

Yes.

[Himanshu Gupta, analyst]

And how is the response in general on the Sandalwood retail like in terms of investor interest or any feedback there?

[Kelly Hanczyk, executive]

Interesting. Institutionally, very, very small interest locally, Montreal local, a lot of interest. So it's been a very interesting marketing that you think it probably has to do to the 50% nonmanaging right? Like the institutions all want to step in and everyone thinks they're the best manager in the world. So -- but there was a lot -- pretty strong interest from local Montreal.

[Himanshu Gupta, analyst]

Just on the development side. So Global Road is the only one left now in terms of to be leased up?

[Kelly Hanczyk, executive]

Yes. We do have 2 other development parcels, one in Hamilton near Glover and one on self-service Road near Stoney Creek. We probably aren't going ahead with them. I think the development returns are a little skinny for us. So we could end up looking just to move those parcels, which we're working on something, and that might end up being fairly lucrative. So -- and then we put a lot of cash back into our coffers to reduce the debt. So we'll have to see how that plays out. We have enough development opportunity, I think, as well in London. And we're also talking to one tenant in, I think, Prince George. We have a -- we have some excess land on our site there that they may want to expand out into. So there's still a fairly significant opportunity within the portfolio.

[Himanshu Gupta, analyst]

And then the Regina, the, I think, 110,000 square feet, that will also get occupied in February, I think you mentioned.

[Kelly Hanczyk, executive]

Yes. We're really close that we had the offer lease just on the last little tidbits of actual lease negotiation. I was hoping to have it this morning, but probably be this afternoon or tomorrow. And then that has a hard quarter February 1 start date.

[Operator]

The next question comes from Matt Kornack with National Bank Financial.

[Matt Kornack, analyst]

You guys have been successful in kind of bucking the trend with regards to occupancy declines in the industrial portfolio and are getting pretty good rent spreads. But can you give us a sense as you look to 2025 and maybe even the remainder of '24 as to what type of retention ratios you're seeing on tenants? And then a second question to that, you guys provide market rents relative to in-place rents. Are those pretty good proxies for the maturities that you've got upcoming in the next 1.5 years?

[Michael Rawle, executive]

Yes. So just to give you a little color on the 2024 renewals that we've done so far, we've renewed about 3/4 of our portfolio -- of our expiries for 2024 at an average growth of 24% over existing. So pretty healthy spreads there, which is going to lead to about another $1.5 million of annualized NOI going forward. We look at 2025, we've done about 50% of our expiries already. And the growth on those is lower at this point, it's around 10%, but we haven't done the big ones yet. We've got a 250,000 square feet that's coming up there, which is currently 200% below market. And so I expect that to drive about another $2 million of rent lift. So that's either if we do it to market or if we renew a release with the existing. So I think pretty good juice in the tank there and evidence that we are being able to get the mark-to-market that we would expect.

[Matt Kornack, analyst]

And do you have any indication at this point like a rough indication as to whether that tenant will stay or if you'd be sourcing a new one?

[Kelly Hanczyk, executive]

Yes, the big one. So I would be highly surprised if they were actually able to leave. It's a pretty specialized building and the restoration of the building to bring it back to where it would be, would be very punitive to them. So I am optimistic. Listen, you always want them to stay. It's a great building. It's a great location rate on the London airport. So -- but it's always easier to keep the tenant. So we'll see how we do. They don't expire until December. It is one that we tried to do an early renewal and extend and blend with. But they -- after back and forth, back and forth, there's a difference between the local operations and the United States parent. So we'll see how it goes. But I'm pretty sure they'll end up staying.

[Matt Kornack, analyst]

That's great. And congrats on reaching this inflection point.

[Operator]

The next question comes with Jimmy Shen with RBC Capital.

[Khing Shan, analyst]

Just a general question on the London market and maybe it applies to that 23,000 tenant as well that you're speaking of. The availability is still pretty tight and the narratives rightly wrongly was that London benefited from Toronto being so tight in positive spillover effect. But now that we're seeing a little bit more slack in the Toronto market, do you think that will impact Linden at all? So I guess I just wanted…

[Kelly Hanczyk, executive]

No. So there's too many drivers in that Southwestern Ontario node now. So you've got to take into account that in St. Thomas, the -- I was down there, I don't know, 3 weeks ago in the amount of land in the start of the Volkswagen plant, which they're calling between 3 million and 5 million square feet. So that alone will create the need for a significant amount of new industrial in that node. So when I look at the overall fundamentals of London, I think that market is going to continue to outperform.

[Khing Shan, analyst]

The CB is showing that the asking rent in London started to trend down a little bit. I wonder if you're seeing the same or whether this is -- given the market is still so tight, I was a lot surprised to see that trend.

[Kelly Hanczyk, executive]

Yes. I mean we haven't seen it. So I always a little bit at odds with some of the reports because I'm like it could be older product that's come vacant that tends to then drive down the overall. But if you have a good quality, well-located product there, you're still 12.

[Operator]

The next question comes from Sam Damiani with TD Securities.

[Sam Damiani, analyst]

And I'll echo the congratulatory words. Great to see the results and the pivot point being reached here. I guess most of my questions have been asked. I just wanted to, I guess, get a sense at this stage, Kelly, just given it's been kind of 2.5 years of rate hikes and now we've turned the corner. You've got the concentration heading towards 90% pretty quickly here with good visibility. What's the sort of next stage in Nexus' growth and strategy to take Nexus to where it wants to be in the next sort of 2 to 4 years?

[Kelly Hanczyk, executive]

Yes. Listen, I think right now, we're about 93% industrial by the time -- at the end of this year, hopefully, that is pretty close to 100. 97, we got some straggler assets to get rid of. And at that point, it's an industrial pure play. And it's what we've been striving for in trying to get to. So hopefully, what we've done over the last several years of high grading the portfolio, you've made yourself in demand and people are seeing the results of the development and the moves that we've made and our payout ratio continued to drive down to where it's a pretty attractive story. And if the stock -- if the market -- if rates drop and the market cooperates and we're able to go back up, we'll be back on track to complete unit deals with different buyers, much harder to do, and there's a huge difference between your trading price and the -- and what you're asking them to take the stock at. So hopefully, we can drive. We've been building relationships for that. And if the markets open up, I'd like to see us grow substantially again and continue to grow and grow in our notes. We can continue to grow in Southwestern Ontario. I like to grow more in the GTA. Montreal, we probably will grow a little bit less. We do have opportunities out there. Maybe in the Vancouver Richmond node opportunities keep popping up Colona, so at the end of the day, we'll -- it will be a little bit market dependent. Our hands are tied right now. We're not about to raise equity anywhere near these levels. So it's really about straightening out the portfolio, driving down the payout ratio, getting our debt down and then taking it from there.

[Operator]

[Operator Instructions] The next question comes from Mike Markidis with BMO Capital Markets.

[Michael Markidis, analyst]

Just a follow-up for me. So Mike, you gave really good color on sort of the 24 and 25 leases that have been addressed. So I just want to make sure I'm thinking about that properly. So on the 2025s, 60% has already been addressed. So the 1.2 million of investor...

[Michael Rawle, executive]

Sorry 50. It's 50 Mike

[Michael Markidis, analyst]

50. Sorry, my bad. So does that mean there's 3 or, I guess, 2.5 million square feet of industrial where rent increases will kick in next year? Or is -- I guess, is the one is the maturity schedule you show is that a net of commitments? Or is it a gross expiry...

[Michael Rawle, executive]

No that will be -- that's the gross.

[Michael Markidis, analyst]

That is correct.

[Michael Rawle, executive]

That's... Yes, yes. That would not include commitments. Those are just -- those are pure lease maturities right now coming up.

[Michael Markidis, analyst]

Perfect. So you've got up to $1.25, you've got 50% done at a 10% and then the $250,000 and one extreme is it there?

[Kelly Hanczyk, executive]

It's not more -- it's Robin Hills Road.

[Michael Markidis, analyst]

Hills Robin Hills…

[Kelly Hanczyk, executive]

Is the asset.

[Operator]

This concludes the question-and-answer session. I would like to turn the conference back over to Kelly Hanczykfor closing remarks.

[Kelly Hanczyk, executive]

All right. I want to thank everybody for attending the call. It's a good quarter. It looks like it's going to continue on from here on in. So we look forward to positive results next quarter.

[Operator]

This concluded today's conference call you may disconnect your lines. Thank you for participating, and have a pleasant day.